(By Mike Kulej) Several currency pairs open trading week with gaps. They mostly developed in the commodity currencies. Unfortunately, majority of them were small, not suitable for trading. However, since I had not discussed a gap trade on these pages in a long time, I decided to take one in the AUD-USD. This pair experienced the largest jump at the start of trading giving an impression of relatively easy few pips. More about it later on in the post.
In a development related to my last update, it was reported that the so-called troika, asked the Euro zone finance ministers to extend terms of bailout for Greece by two years. At present, Athens is expected to reduce its debt level to 120% of GDP by 2020. This is considered a "sustainable" level of debt, meaning that Greece could both grow and be able to repay that debt. As things stand now, according to the inspectors, Greece will miss that target due to worsening economic conditions. The troika now projects the debt level to be at least 140% of GDP and reportedly recommends a two-year extension. While no officials confirmed this request, if true, it could cause even more tension among member states. The Euro sold off in early trading, as if expecting more Greek drama ahead, although the afternoon session brought strong recovery.
The AUD-USD opened higher on Monday, about 25 pips above its closing level from Friday. Normally, I prefer to see a gap in the range of 40+ pips, because they offer decent opportunities. Here, with entry at 1.0244, or just under the first minor low on the 5M chart, it did not leave much room for profit. The opening range of the gap only 15 pips below the entry.
I settled for 11 pips, perhaps jumping the gun, but I do not like trying every possible pip out of the gap trade. After all, they may vary slightly from platform to platform and trying to project these trades "to the pip" is a foolish proposition. I had not expected much, so it was a satisfactory result. One way to look at it is to call it easy 11 pips, especially since the trade came to a speedy conclusion.